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from Chrystia Freeland:

‘Kumbaya’ capitalism collides with self-interest

DAVOS, Switzerland--George Soros is a traitor to his class. That’s not an insult or a tabloid exaggeration. It is, instead, a direct quote from my conversation with the billionaire investor and philanthropist at the World Economic Forum here.

‘‘I am a traitor to my class,’’ Soros said. ‘‘I think that the income differentials are too wide and ought to be narrowed,’’ he added, which is why he favors a bigger hit on those, like himself, at the very top.

But among his plutocratic peers, he said, that is very much a minority opinion. In fact, Soros, who helped spearhead the muscular Wall Street support for Barack Obama in the 2008 presidential election, particularly among hedge fund and private equity investors, believes the president’s call for higher taxes is the reason he has been ditched by the financiers: ‘‘That has led my hedge fund community to abandon Obama in favor of any Republican, because they don’t like to be taxed.’’

Henry Blodget, a former (and formerly disgraced) Wall Street analyst who has been resurrected as one of the smartest writers on business and politics, agrees that the financial class is strongly attached to its tax breaks. After his Wall Street friends have had a few drinks, he said, ‘‘they are cackling that they have fooled everybody into thinking that there’s some justification for this.’’ ‘‘This’’ is the carried interest tax provision, which allows some private equity and hedge fund managers to pay tax at 15 percent.

But the cackling may be coming to an end — and the hostility toward the president mounting — following his State of the Union speech on Tuesday. A centerpiece of that address, and most likely a central theme on the campaign trail over the next nine months, was Obama’s insistence that the 1 percent must pay up.

‘‘Right now, because of loopholes and shelters in the tax code, a quarter of all millionaires pay lower tax rates than millions of middle-class households,’’ Obama said, in an oblique attack on the carried interest tax break and on Republican candidate Mitt Romney, who paid an effective tax rate of 13.9 percent on income of $21.6 million in 2010.

‘‘Tax reform should follow the Buffett Rule,’’ the president said. ‘‘If you make more than a million a year, you should not pay less than 30 percent in taxes.’’ And, like Soros, the president has decided not to duck charges of class war: ‘‘Now you can call this class warfare all you want. But asking a billionaire to pay at least as much as his secretary in taxes? Most Americans would call that common sense.’’

from Chrystia Freeland:

Carlyle Group’s Rubenstein is charmed by China

Watch Carlyle Group co-founder David Rubenstein explain to Chrystia why there's greater political risk in the United States than in the emerging markets; how he gets a better reception from Chinese Communist Party cadres in Beijing than his own members of Congress in Washington; how private-equity firms can help remedy the impending entitlement crisis; and how the procedure that enacts Congressional salary increases can be adopted to cut the deficit.

Posted by Peter Rudegeair.

from Chrystia Freeland:

The U.S. capitalist love affair with Communist China

The American blogosphere lit up this week with discussion of a report from the International Monetary Fund that, by some measures, the Chinese economy will be bigger than the U.S. economy by 2016.

It makes a great headline, but that story was, of course, old news: Given China’s size, and the speed with which it is growing, simple arithmetic tells you that its economy will one day be bigger than that of the United States. The only question is when.

The bigger surprise is the huge affection U.S. capitalists have for Communist China.

“When I go to China, I find more people in government who are interested in learning about the things that private equity can do to help an economy and help companies than you often do in Washington,” David Rubenstein, co-founder and managing director of Carlyle Group, one of the world’s largest private equity firms, said in an interview this week.

“Washington, for a number of reasons, is not as focused on the joys of private equity,” Rubenstein explained. “So very often, you have to defend yourself when you’re talking to a member of Congress.”

In contrast, he said, he gets a warm reception in the People’s Republic: “What they really think is that private equity firms have shown in the West that they know how to make companies more efficient, that they know how to make workers more efficient and managers more efficient and how to make companies more productive. And that’s something they want.”

The content of his remarks is conventional wisdom among U.S. business people today: it is a truth universally acknowledged that China – with its censorship, central plan and one-party state – is a better place to do business than the United States.

from DealZone:

World’s financial center is moving, Carlyle co-founder says

The financial crisis has made the world less focused on the U.S., which will have to face up to the fact that it is not as significant as before, Carlyle Group co-founder David Rubenstein told a large audience at the World Business Forum in New York:

"After World War II we were 48 percent of the world's GDP; now we are about 20 percent of the world's GDP... We have to get used to the fact that the dollar is relatively cheap and ... that the dollar is probably not going to be the reserve currency that it's been for so many years."

Rubenstein said the center of the financial world won't just be New York, but spread between here, London, Shanghai, Dubai, Sao Paulo and a few other cities.

Rubenstein concentrated particularly on the U.S. economy's problems, listing issues such as the deficit, inflation, taxes and employment. He said that the U.S. is about two years into the recession and probably has a "month or two to go."

He listed the areas he thinks are attractive investment opportunities: distressed investing, companies getting support from the U.S. government, energy (both carbon and alternative),  healthcare and emerging markets such as China, India and Brazil.

Among the final tidbits of advice that the private equity chief shot at the audience was to avoid excessive leverage:

"What we learned out of this most recent recession is if you borrow a lot of money it comes home to roost, so I'd avoid leverage--even normal leverage can be very dangerous at times when the economy goes down."